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FASB comment deadline on the proposal for accounting for credit losses on financial assets extended

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29 Mar 2013

The US Financial Accounting Standards Board (FASB) has extended the comment deadline for its proposal to improve financial reporting about expected credit losses on loans and other financial assets held by banks, financial institutions, and other public and private organizations. The new comment deadline is 31 May 2013.

The FASB issued the proposed Accounting Standards Update (ASU) Financial Instruments — Credit Losses on 20 December 2012. The proposed ASU introduces the current expected credit loss (CECL) model for accounting for the impairment of financial assets. The proposed CECL model is intended to require more timely recognition of credit losses, while also providing additional transparency about credit risk. It replaces the multiple existing impairment models in US GAAP which generally require that a loss be incurred before it is recognised.

On 7 March 2013 the International Accounting Standards Board (IASB)  published its long-awaited proposal for a new accounting model for impairments of financial assets. In the Exposure Draft (ED) the Board proposes a model according to which credit losses are no longer recognised if incurred; rather, entities would recognise expected credit losses on financial assets and on commitments to extend credit based upon current estimates of expected shortfalls in contractual cash flows as at the reporting date.

The key difference between the IASB’s proposals and the FASB’s approach is that the FASB would not distinguish between instruments that have deteriorated since their initial recognition and those that have not. Instead, the FASB would require a single measurement model for all financial instruments when determining the impairment allowance: At initial recognition entities would recognise a charge equaling the present value of lifetime expected credit losses.

Constituents had been asking the FASB to extend the comment deadline to give them time to consider the IASB ED and the FASB's proposal in parallel. Earlier this week the FASB staff already issued a document responding to frequently asked questions in order to help constituents understand the FASB proposals.

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